It’s a bad flu season, but that’s good news for Walgreen

Walgreen’s had a great December, and it can thank an early and wide-reaching flu season for the boost.

Walgreen’s WBAmonthly sales were up 10.2% year-over-year last month to $7.92 billion, and the higher incidence of flu this season positively impacted it’s sales by 0.9 percentage points.

The gains come from sick patrons buying up prescription antiviral drugs like Tamiflu. Walgreen has also administered 13.4% more flu vaccines this season, a total of 7.5 million doses.

The U.S. is facing a miserable flu season, which has already been declared an epidemic by the Centers for Disease Control. This year’s vaccine is a relatively poor match to the virus that is currently circulating around the nation. That’s contributing to the large number of reported cases, many of which were severe enough to require hospitalization.

Forty-three states are recording high numbers of flu infections, the CDC said. Kentucky, Tennessee and Mississippi are the three hardest hit states, respectively, based on the Walgreens Flu Index for the week of Jan. 5.

That’s bad news for those of us looking to stay healthy during the flu season, which typically peaks in February. But it’s helped the bottom line for drug stores like Walgreen, which provide both the vaccines to prevent the virus as well as the drugs to treat it. Many people may have to go in for both such items given the poorly-matching vaccine this year. The CDC encourages people to get the flu vaccine and “prompt treatment” with antiviral prescriptions if infected.

More people walking into Walgreen stores is also good news for front-of-store sales, items like greeting cards, tissues and cough drops. Total front-end sales increased 3.5% in December compared a year earlier, and customer traffic in comparable stores was up 0.3% over the same period.

Other drug stores may also be benefitting from the harsh flu season. CVS Health CVS, which reports its updated sales numbers in its quarterly report on Feb. 10, said that flu vaccinations were up by about 8% this season. CVS, unlike its peers, doesn’t disclose monthly sales trends.

Rite Aid RAD, which has distributed more than 3 million flu vaccines this season, reported December same-store sales leapt 5.3%. The ongoing strong demand at the pharmacy counter was partially attributed to flu-related prescriptions, according to a company spokesperson.

CVS stakes its claim in the healthcare market with new name change

CVS Caremark CVS unveiled its new name change to CVS Health — and with a new tobacco-free image that will focus the drug store squarely in the healthcare industry.

CVS wiped its stores clean of all tobacco products as of Wednesday, beating its initial target date of Oct. 1. It also launched a comprehensive smoking cessation program through its pharmacies, the company announced.

The lost tobacco sales, which the company first announced it would take off its shelves in February, will deprive CVS of about $2 billion in annual revenue.

The drug-store is banking on its image change. The company hopes that by becoming the first chain to stop selling tobacco, consumers will be convinced that its 7,700 pharmacies are the go-to for their health and wellness needs.

While the financial benefit from a public relations halo-effect is unclear, CVS believes that the move could have an effect on the larger use of cigarettes and other tobacco products.

Based on a study the company released, the number of people buying tobacco dropped by about 13% in Boston and San Francisco after those cities banned tobacco sales at retailers with pharmacies.

None of the other retail chains have followed suit, yet. Walgreen WAG, the largest U.S. drug-store chain, said that only 4% of tobacco products are sold at pharmacies and believes that stopping sales won’t have a material impact on the number of smokers.

CVS will continue to operate its pharmacy business under the CVS/pharmacy name and its pharmacy benefit management business under the CVS/caremark brand. It also has its walk-in clinic program, MinuteClinic, as well as its specialty pharmacy services that will remain unchanged.

Walgreen bows to pressure, nixes inversion for Alliance Boots deal

Walgreen WAG said on Wednesday it has agreed to buy the remaining 55% of UK-drugstore chain Alliance Boots it doesn’t already own for $15.3 billion, but won’t pursue a tax-reducing inversion structure for the deal, and stay U.S. based instead.

Walgreen, the largest U.S. drugstore operator, had initially considered moving its tax-base abroad in a tax inversion deal, which would have lowered its corporate tax rate from the U.S. 35% standard, one of the highest in the world. One ISI analyst estimated that an inversion would have lowered Walgreen’s tax bill by $4 billion over 5 years. But after an extensive review, and intense public pressure, the executive team, which had been pushed by activist investors to consider such a deal, nixed the idea, feeling that the inversion would not pass muster with regulators. Walgreen shares plummeted 9% in premarket trading.

“We could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive IRS review and scrutiny. As a result the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S.,” said Walgreen CEO Greg Wasson. So Walgreen will remained headquartered in Deerfield, Illinois.

In an inversion structure, a U.S. company buys a foreign target and adopts its home country’s domicile or that of another foreign country with a lower tax rate. For a deal to meet regulatory requirements, shareholders of the acquired company must receive stock amounting to at least 20% of the resulting entity.

Walgreen, which competes with CVS Caremark CVS and Rite Aid RAD, had admitted in late June is was mulling relocating its headquarters to Switzerland for tax purposes, in a move that would have been part of a recent wave of inversions: drugmakers AbbVie and Pfizer PFE have each recently struck or attempted deals that would lower their tax rates and see them move overseas.

But political pressure has risen of late. President Obama recently said inversions were “were wrong,” and on Tuesday, a Treasury Department spokeswoman said that it is looking into whether it has the authority and ways to that could limit the ability of companies to engage in inversions, and ways to reduce the tax benefits after inversions happen. One Illinois Senator recently wrote Wasson a letter saying an inversion deal was tantamount to Walgreen turning its back on Illinois.

Walgreen also referenced popular sentiment as a barrier to moving its headquarters abroad. The company has a “unique role as an iconic American consumer retail company,” it said in a press release, “with a major portion of its revenues derived from government-funded reimbursement programs.”

The $15.3 billion deal ($5.3 billion cash and about $10 billion in Walgreen shares) creates a worldwide drug purveyor with more than 11,000 stores across 10 countries, the company announced. It also establishes the largest pharmaceutical wholesale and distribution network with over 370 distribution centers catering to more than 180,000 pharmacies, doctors, health centers and hospitals in 20 countries. It is likely to give Walgreen more clout with drugmakers and suppliers, and reduce its costs as it fends off CVS, which in addition to its retail business, also operates a booming pharmacy benefits management company, Caremark.

Walgreen acquired its initial 45% stake in June 2012 for $6.7 billion and decided to sweep up the remaining share ahead of the original option period set for February through August 2015. The new global drugstore, which still faces shareholder and regulatory approval, will be headquartered in the Chicago area. The transaction is expected to close in the first quarter of 2015.

The senior team will blend leadership from both companies, establishing Walgreens’ Greg Wasson as president and CEO and Alliance Boots’ Stefano Pessina as executive vice chairman.

The combined company plans to find $1 billion in savings by the end of 2017 and is outlining a “Next Chapter” plan that will set strategic goals to achieve over the next three years.